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After many months of waiting, local government has now heard how the chancellor has decided to fund councils for the next three years. With significant reform of local government finance apparently on the slow track, the Comprehensive Spending Review has landed in a world where, even if schools spending is left out of the equation, councils will be relying on government grant to cover more than half their expenditure. It is very unlikely the CSR settlement will fully cover the cost pressures councils currently face. This year, councils will spend around £14bn on adult social services. If the demand for those services stayed the same, pay and price increases would add 3-4% a year to costs. Many social care services are commissioned from the private sector, and costs have been rising at more than 4% a year. But, as we all know, people are living longer. The number of people aged over 85 is expected to increase by 2.5% a year over the next three years, part of a forecast 38% increase between 2005 and 2017. One-quarter of the over-85s will develop dementia and one-third will need constant care or supervision. Furthermore, numbers of adults with more complex and expensive needs, such as learning disabilities, are also rising. These demographic changes add 3.5% a year to costs. Thus, even without policy change, the costs of councils' social services for adults could be expected to rise by around 7% annually. And that figure is well ahead of the overall growth in public spending the chancellor signalled at the time of the Budget – 1.9% a year in real terms, or perhaps around 4.6% a year in cash terms, given current trends in inflation. New policies will also cost councils more. The current model of social care provision is not cost-effective, and doesn't meet the needs of vulnerable older people. The Government's Our health, our care, our say White Paper sets out a better approach. Greater investment in preventative services would make money go farther, provide better value for the taxpayer, and help improve the health of the nation. With more care shifted to the community, increases in the cost of managing long-term conditions in hospital, estimated on the current model to be more than 40% over the next 20 years, simply as a result of the population ageing, can be limited. Pilots to provide residentially-based rehabilitation, intermediate care and respite service have reduced acute bed days and admissions to residential care. And if falls among older people could be reduced by only 15%, it would save the NHS more than £250m a year. To improve the quality of life for older people, and make these savings, councils need to be resourced to make the necessary investment. Will Whitehall help or hinder? Will a narrow departmental approach persist, with each part of the public sector narrowly targeted to deliver 3% annual cashable efficiency gains – the Government's confirmed savings ambition. Or will the opportunities for truly joined-up public service be taken? This picture is replicated in other key local government services. In children's services, outside schools, where the current spend is more than £17bn each year, the Local Government Association has estimated new policies such as extended schools will add a total of £5,758m to costs over the CSR period. And on waste management, modelling by DEFRA has indicated the need for spending to rise by 10% annually, over the period to 2013, if environmental targets are to be met. These kinds of cost pressures can't be funded sustainably through increases in council tax. Even in the more benign public spending environment of the last spending review, many councils were setting budgets requiring council tax increases approaching 5% – and this after taking account of efficiency savings consistently ahead of the Government's target. With services for older people the area where councils have the greatest discretion to manage the level of service provision, there will be some tough choices ahead for councils and local people. Stephen Jones is director of finance at the Local Government Association

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FINANCE

Counting the cost

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